Analysts see volatility ahead for dollar whatever Reserve decides

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Markets are bracing for a tumultuous morning of trading
following the Reserve Bank's interest rate announcement at 9.30am
today.

The dollar shed half a US cent yesterday, finding only temporary
relief in figures showing a shrinking trade deficit.

The market was split 50:50 on whether the Reserve would raise
interest rates by 0.25 percentage points to 5.75 per cent today.
With predictions for a rise as varied as tossing a coin, analysts
painted a gloomy outlook for the dollar.

Macquarie Bank currency strategist Joanne Masters said the
dollar was unlikely to benefit significantly even if the Reserve
raised interest rates, because markets would quickly adjust to the
prospect of no further moves this year. The dollar then faced
"headwind" from rising US interest rates, she said.

Yet Westpac chief currency strategist Robert Rennie said the
dollar faced more immediate risks if rates were held steady. The
Reserve only issues a statement explaining its reasoning if it
decides to change interest rates. "No move means no statement, and
no statement means confusion," Mr Rennie said. "The Aussie is going
to be very volatile no matter what."

Yesterday the dollar failed to sustain gains from figures
showing Australia's international goods and services deficit
narrowed by $90 million to a monthly deficit of $2.18 billion,
seasonally adjusted, in February.

A $453 million downward revision of the January trade deficit by
the Bureau of Statistics presented a much more positive outlook on
exports.

National Australia Bank economist Kristina Jawerth noted that
with exports rising 1.1 per cent in February, led by the rural
sector, "this means exports have posted three consecutive monthly
increases".

The dollar similarly got little help from figures showing
recovery in the services sector. The Australian Industry
Group-Commonwealth Bank performance of services index registered an
expansion in the sector in March, rising 2.7 points to 51.4.

The uncertainty surrounding today's rate announcement comes as
the US dollar continues to surge. The Australian currency has shed
US2.5c in the two weeks since the Federal Reserve signalled a more
aggressive pace of US interest rate rises, making the US dollar
relatively more attractive.